DTZ in Finland expects prime industrial rents, which remained stable last year at €10.50 per sq m per month, to rise this year despite the number of new logistics premises totalling 100,000 sq m under construction. The Aviapolis area around Helsinki-Vantaa airport is developing as a logistics centre and, in Vuosaari in eastern Helsinki, the new port with about 160,000 sq m of new logistics space will be in operation by 2008- 2009. Helsinki-Vantaa airport is home to the 40,000 sq m DHL Business Park and the 95,000 sq m Viinikkala Logistics Centre. Espoo and particularly the third ring road which links the Helsinki airport with Espoo, is another area where logistics property is concentrated.
The vultures are gathering. Property consultant Jones Lang LaSalle has taken on rival GVA’s team in Helsinki and opened up shop under its own name. It already has an office in Sweden. JLL says the Finnish property market is on the up.
Finnish portfolio
As if acting on Pulsford’s advice, Kenmore European Industrial Fund has bought three industrial portfolios in Helsinki, Stuttgart and Kungsbacka in Sweden comprising 590,000 sq ft for €47m. Yield for the Finnish portfolio is 7.24 per cent and 7.03 per cent for Sweden.
For the seafaring nations of Scandinavia, ports remain a focus. Among occupier activity, Schenker has officially opened Finland’s first multi-modal logistics centre in the port of Turku, linking the four carriers – truck, air, ship and rail – as well as serving as a distribution centre. The rail link enables goods to be transhipped directly out of the wagons coming from the ferry terminal. The 22,000 sq m facility comprises seven naves that can be temperature-controlled if required, with storage space for 45,000 fast turnaround pallets.
Further south, the market for property professionals is less inspiring. This may give heart to beleagured 3PL property directors looking for bargains.
In the run-up to the opening in the 1990s of the Øresund bridge between the Copenhagen region and Malmo in Sweden, there was a significant press output from the promoters of the development area on the Danish side of the bridge, Ørestad, showing how it improved the offer of the whole area. Graphic maps of Europe showed concentric circles homing in on Copenhagen and the line was that, in terms of European communications and logistics, Ørestad compared favourably to Milan.
Then the bridge opened. Yes – Copenhagen has benefited from increased development, but in a similar way to how the service station, Scratchwood, benefited from the opening of the M1 motorway in the UK. A destination Scratchwood ain’t. The inexorable rise of Hamburg and even Rostock as hub and port has relegated points north to somewhere between service station and backwater. And the fact that the further north you go into Scandinavia the more of a cul de sac you reach does not help.
Look at the Scandinavian logistics property market on its own, however – as the much-vaunted ‘Nordic Triangle’ – and you start to feel more confident in its institutional strength. According to property consultant King Sturge, the industrial market in Sweden was strong during 2006, with healthy letting activity in all the major markets. The only bargains to be had for occupiers are among older units not suitable for logistics use but useable as depots. Vacancy of these units is currently around 10 per cent. Demand for smaller units in modern industrial parks, however, is good and areas such as Lunda and Veddesta have seen falling vacancy.
King Sturge reckons on industrial rents range from €70 per sq m/annum for secondary space up to €100 per sq m/annum for prime in the Stockholm region.
Dominant player
In its latest report, CB Richard Ellis says that the prime rent for new logistic properties let on long leases is around €48/sq m/annum. The rent for similar properties let on short leases (3-5 years) is approximately €85/sq m/annum. Two schemes by ProLogis have dominated the market: one in Jordbro south of Stockholm (17,000 sq m) and one in Gothenburg (20,000 sq m).
CBRE sees change in the logistics property market, with many large companies starting to consolidate into fewer larger premises. Over the last five years, the take-up of new logistic properties over 10,000 sq m has been around 150,000 sq m per annum. In recent years, significant occupier demand for high quality space on short leases has emerged, especially for premises with cross-docking facilities in metropolitan areas.
DTZ in Sweden puts prime industrial rents at €111 per sq m per year. It expects them to fall slightly this year. This contrasts with Norway where prime industrial rents increased from €96 per sq m per year to €105 per sq m during 2006 – a 12 per cent rise. Among deals was Axis-Shield’s leasing of 16,000 sq m in Kjelsåsveien 161. DTZ puts this down to a lack of supply on the market.
The logistics market is primarily concentrated in two areas around Oslo: firstly to the north east towards the Gardermoen Airport and secondly, to the south along the E6. The latter location is particularly attractive to international logistics operators as the E6 is the main route from Oslo into Sweden. Because much of the historic demand has come from local operators, a large proportion of the stock is fairly small by international standards. And even now, Oslo has yet to see significant growth in larger logistics facilities. A 10,000 sq m unit would still be considered a large warehouse in Norway. As the market matures, it is likely that the size of units available will increase and larger units particularly will become more commonplace.
Environmental sustainability has been a focus for many Swedish industrial parks following the success of the Solna park, Stockholm, and is expected to become an increasing requirement for industrial developments. CLS sold Solna Business Park to Fabege AB in August 2006 for €391 million.
Industrial park expansion
Outside Stockholm, industrial parks are generally undergoing expansion; for example, Ljungarum industrial estate in Jönköping and Högsbo industrial estate in Gothenburg are increasing in size with new units being added, the majority of which are prelet.
King Sturge expects the high demand evident in the Swedish industrial market to hold throughout 2007, bolstered by increasing employment, a strong economy, and good access to investment capital. Increasing links to Asia from Arlanda airport are also expected to prompt some demand around the airport for smaller industrial units and possibly cargo related activities.
In terms of buying the freehold of buildings outright, Sweden is now ranked as the fourth largest property market in Europe after a strong year in 2006 with 43 per cent growth in transaction volumes, according to King Sturge. Total volume of industrial investment transactions in 2006 was estimated at €72.5million. Some of the underlying factors driving this development include low interest rates, the perception of property as a stable asset and a reasonable level of market transparency. Transaction volumes will continue to grow in 2007, in line with the upward trend of the past five years.
Part of the reason for this is the immaturity of the market in pure property terms. Researchers from CBRE say that one reason is that many of the large Swedish companies that are in need of logistics solutions manage these services in-house. Another reason is that, by tradition, Swedish companies own their properties, although there has been an increase in the amount of sale-and-lease back transactions over the last few years.
King Sturge says that there is no sign that investor interest is fading and good rental growth will keep downward pressure on yields. However, with yields for industrial property now approaching 6.5 per cent, with good market evidence for 7.0 per cent yields, this compression should slow.
Availability still limited
As for Denmark, DTZ reports that availability still remains limited to old stock, which has sparked developer interest in speculative development. For example, Simcorp is currently planning a 13,500 sq m development at Amager Boulevard. Prime industrial rents remain stable at €63.8 per sq m per year.
CBRE says rents have been under a downward pressure for some time now, mainly as a result of very competitive pricing in the secondary market. Rents have stabilised at around €63.8 per sq m per annum in the Copenhagen area. In the Triangle Region in Eastern Jutland rents are at €47 per sq m per annum. In both areas CBRE expects rents to increase over the medium term.
The development potential in the Triangle Region around Vejle, Fredericia and Kolding is facilitated by the ample availability of sites for sale in Vejle Nord, Vejle Syd, Bramdrupdam, Taulov, Erritso and Snoghoj – more than 5.5 million sq m for industrial and logistics purposes.
As well as industrial zones in Greater Copenhagen, the capital city region is served by four principle mixed industrial and distribution/business parks – transport centres. These are: Køge (Skandinavisk Transportcenter), situated 40 km south from Copenhagen. Serviced by the E20 motorway, rail and harbour connections; Greve Main, situated about 24 km south of Copenhagen and serviced by the E20 motorway; Høje Taastrup Transportcenter, situated 23 km west of Copenhagen and serviced by the E21 motorway and rail; and Ishøj, situated 21 km south of Copenhagen and serviced by the E4 and E20 motorways.
Generally the market for logistics and distribution in Denmark is arranged around three sectors: biotech, food production and IT/telecommunications. Logistics facilities, and particularly build-to-suit premises, split geographically by sector, by and large, into: biotech-pharmaceutical in Greater Copenhagen, especially Hillerød and Ballerup; food production into the Triangle Region and Aarhus; and IT and telecommunication into Greater Copenhagen, especially Birkerød/Allerød, and Aarhus.
Flexible leasing
CBRE believes the logistics sector in Denmark will continue to grow in the immediate future. Third party logistics are expected to gain further market share and will be interested in flexible leasing solutions. Currently owned stock, as well as newly built projects, will see more sale and leaseback activity, especially in the areas where the yield premium is high.
The Scandinavian logistics property market has a long way to travel in terms of maturity. The good news is that the basics for institutional interest, such as market transparency, are already in place. All that holds the region back is its geographical curse: it’s northerly position and fiddly lumps of water separating it from the rest of the world.
Property fund Aberdeen is one of the chief vultures in the European logistics property market. As a buyer of property across Europe, it expects the Nordic property markets to outperform the rest of Europe in 2007 despite predicting a deceleration in total returns in the region as capital values weaken. So rents generally will go up, according to Aberdeen’s analysts.
Aberdeen’s 2007 forecast for total Nordic property returns of 10.3 per cent compares favourably to the 8.1 per cent predicted for Europe as a whole. The Nordic property markets have been recovering strongly, with rental levels increasing and vacancies generally decreasing across most cities and sectors. The recovery is underpinned by strong fundamentals, with the Nordic region expected to continue outperforming Core Europe in terms of economic growth. Real GDP is predicted to have reached 3.9 per cent in 2006, significantly higher than the 2.7 per cent forecast for the Euro Zone as a whole.
[asset_ref id=”163″]
[asset_ref id=”164″]
[asset_ref id=”165″]
